Serrisa Sinar Bhd - 2010

MARC has affirmed the ratings of special purpose company Serrisa Sinar Berhad’s (Serrisa Sinar) RM200 million ICP/IMTN notes (Senior Notes) and RM20 million Junior IMTN (Junior Notes) at MARC-1ID /AAID and A+ID respectively. The rating outlook is stable. The affirmed ratings reflect the credit quality of the rental payment stream from creditworthy telecommunication companies as the source of repayment of the notes. The payment stream is backed by a 10-year licence agreement between Common Tower Technologies Sdn Bhd (CTT), a state-backed company (SBC) of Sabah, and the three main domestic telecommunication operators (telcos), Celcom Axiata Bhd, Maxis Broadband Sdn Bhd and Digi Telecommunications Sdn Bhd, that obligates the telcos to make monthly rental payments of defined amounts for usage of telecommunication towers (telco towers). The ratings continue to be supported by structural protection through regular trapping of rental payments from the telcos to mitigate the liquidity and commingling risks. Proceeds from the issuance of notes will only fund completed towers, hence noteholders do not assume construction risk. The rating of the Junior Notes reflects subordination to the Senior Notes in respect of profit payment and principal repayment.

Wholly-owned by Weida (M) Bhd, Weida Works Sdn Bhd (Weida Works) entered a joint-venture agreement with CTT which holds the exclusive right to construct and manage telecommunication towers and structures in the state of Sabah. Pursuant to a joint-venture agreement with CTT, Weida Works has the exclusivity to finance and construct the towers or structures in the state. Consequently, Serrisa Sinar was established as a standalone special purpose company incorporated to facilitate the fundraising exercise for Weida Works through issuance of the notes. CTT’s 10-year Licence Agreement with the telcos provides visibility and predictability to Serrisa Sinar’s rental stream throughout the term of the notes. The quantum of rent payable by the telcos is determined by factors such as the location of the towers, height of the towers, the number of telcos sharing the towers and the variation orders for the towers (if any). The rental payments are assigned to Serrisa Sinar, ultimately to the Trustee, which acts in the capacity of an agent and trustee for the noteholders.

Serrisa Sinar’s revenue stream is not exposed to any construction risk while commingling and liquidity risks are somewhat mitigated through regular trappings of rental payments from the telcos into a trustee-controlled account. Of the total rental payments received, 60% are directed into a sinking fund for meeting the debt obligations of the notes and the remainder is channelled to Weida Works and shall be allocated, among others, towards operating and maintenance costs, alleviating the operation and maintenance risks of the transaction.

To date, Serrisa Sinar has issued RM125 million Senior Notes and RM5 million Junior Notes, backed by 206 towers. The group has paid down RM35 million of the Senior Notes, leaving RM90 million Senior Notes and RM5 million Junior Notes outstanding. MARC notes that to date, rental payments from the existing telco towers have been timely and expects the stable rental performance to continue. The cash flow forecast exhibits resilience to the applied sensitivity test, which include lower-than-experienced variation orders, single tenancy and minimum rental premium for new towers to be completed. Minimum FSCRs were maintained above 1.5 times under the simulated scenarios for both the Senior and Junior Notes throughout the tenure of the notes. The availability of the ICP/IMTN programme which ends in April 2011 takes into account the gestation period of telco tower investments and ensures sufficient cash flow is generated by completed tower financed to meet the redemption of the notes.

The current stable outlook for the notes incorporates expectations of continued timely payments from the existing towers and satisfactory rental performance of new towers, going forward.

Strengths

Challenge

• Exposure to event risk, in particular revenue loss during the reconstruction of destroyed tower(s).